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Speeches

2014 Speeches

Samuel R. Allen     Samuel R. Allen 2014 Annual Meeting of Shareholders
Moline, Illinois
Remarks by Samuel R. Allen
Chairman & Chief Executive Officer
Deere & Company
February 26, 2014

 

Last year, fiscal 2013, was John Deere's best year yet.

  • We delivered record sales and profits.
  • We brought the power and value of the John Deere brand to a growing global audience.
  • And we moved ahead with projects to widen our manufacturing, distribution and financing footprint.

 

For the year, our company reported income of $3.5 billion (USD), on net sales and revenues of nearly $38 billion (USD). Income was up 15 percent on a 5 percent increase in sales and revenues.

 

Earnings per share rose even more than income, reflecting the benefit of fewer shares outstanding and the impact of share repurchases.

 

It was our third straight year of record profits…and our eighth annual record in the last ten years.

 

We're looking forward to another solid year in 2014 and are off to a good start. Earlier this month, we announced first-quarter earnings of $681 million (USD), the most for any initial quarter in the company's history.

 

Our forecast calls for full-year income of about $3.3 billion (USD), a little less than last year's total.

 

What we aren't looking for is a continuation of the blistering market for farm machinery we've seen the last few years, especially in the U.S.

 

Our forecast anticipates a 6% drop in Deere's sale of agricultural and turf equipment, with much of the decline falling on larger equipment.

 

2014 therefore promises to be a pivotal year, in which the investments and operating changes we've made – focused on a more flexible cost structure and wider range of revenue sources – will be called on to keep our performance moving ahead.

 

Much of Deere's recent success is rooted in the concept of keeping our feet on the ground and our eyes on the horizon.

 

Feet on the ground means maintaining a laser-like focus on operational excellence and customer service…and remaining anchored to the traditional values, such as integrity, that have long identified John Deere.

 

It also means doing what our company has always done best – meeting production schedules, bringing quality products to market, and ensuring the needs of our customers are met, creatively and responsively.

 

Deere's record of solid execution shows how effectively we're keeping our feet on the ground. Last year, we introduced dozens of advanced products while completing crucial parts of a sweeping engine-development program.

 

At the same time, our factories did a good job of keeping pace with demand – no small feat considering the high level of customer orders we experienced.

 

Possibly the best indication of how our equipment businesses are running can be found in one number -- operating return on operating assets, or OROA.

It reached 31.8% in 2013, a new all-time high.

 

OROA is a particularly meaningful metric because it takes into account operating margins and asset turnover, both of which are crucial to our long-range success.

 

Eyes on the horizon refers to the investments in capacity, distribution, and product development required to meet the needs of a growing, more prosperous global population.

 

Here the company has been quite aggressive…with roughly 20 major capital projects undertaken in the last four years, including the recent opening of 7 new factories.

 

We also have developed an unprecedented number of new products, most of which are marvels of advanced technology.

 

Earlier this month, as an example, Deere introduced a line of breakthrough planters that can double field speeds and improve planting accuracy.

 

Since planting is the farm activity most sensitive to timing and precision, our Exact Emerge planters could be a real game-changer in helping farmers achieve higher yields.

 

Many of our new products feature clean-burning John Deere-engine technology that satisfies both exacting regulatory requirements for emissions and exacting customer requirements for performance.

 

In one of 2013's milestone achievements, the company completed certification of its larger engines to meet the tougher emissions standards taking effect this year.

 

It's part of a comprehensive program that has led to the redesign of practically all our engines in recent years and reduced emissions by some 99%.

 

Perhaps nothing has made a bigger impact on John Deere's performance than the adoption of economic profit – what we call SVA, or Shareholder Value Added -- as a guiding metric and the basis of our business model.

 

No doubt, you've heard us talk about SVA before. It's the difference between operating profit and an implied cost of capital.

 

Our goal is for every business, every product, and every geographic region, to earn its cost of capital under all circumstances, even at the bottom of a cycle.

 

A close cousin of cash flow, SVA is essential to generating the funds needed to provide value to our investors – both today and in the future.

 

In 2013, enterprise SVA and cash flow from operations both exceeded $3 billion (USD) for the first time.

 

This helped us fund a healthy level of capital projects and provide value directly to our shareholders in the form of dividends and continued share repurchases.

 

Over the last decade, the company has increased the quarterly dividend rate on 11 occasions and repurchased more than 180 million shares of stock.

 

All told, over half of the operating cash flow we've generated over the period has been returned to our investors in this manner.

 

Late last year, our board of directors further demonstrated our commitment to investors by authorizing additional share repurchases of up to $8 billion (USD).

 

In relation to our present market capitalization of a little over $30 billion (USD), an authorization of this size represents a major vote of confidence in the company's future.

 

We believe our recent success positions Deere to compete in a wide range of markets and market conditions. And, it provides a sturdy foundation to pursue growth plans that are moving along at an encouraging pace.

 

It has been said that demography is destiny.


We couldn't agree more. And it's a chief reason we hold such optimism for John Deere's future.

 

Our optimism is based in large part on powerful trends, such as a growing global population and an emerging middle class in many parts of the world.

The global population is adding thousands of mouths to feed, and bodies to clothe and shelter, every hour. In fact, the population is expected to grow by roughly 30%, or 2 billion people, by mid-century.

 

Another phenomenon is that people in developing markets are leaving the countryside, where farming is a way of life, and migrating to cities in a big way.

 

By some accounts, more will live in urban areas by 2050 than inhabited the entire planet at the start of the century.

 

While such a massive population shift brings its share of social challenges, it also gives rise to a more prosperous consumer-minded middle class, more demand for agricultural products, and a greater need for farm mechanization.

 

Demographic changes on this scale also drive a need for roads, bridges, and buildings – and for the equipment required to construct them.

 

All in all, we're confident factors such as these will support demand for productive machinery – productive John Deere machinery and other products -- well into the future.

 

Tailwinds are one thing; converting them into meaningful value for customers and investors is quite another.

 

With that in mind, in late 2010, John Deere launched an ambitious plan to help meet society's increasing needs.

 

The John Deere Strategy – as we've discussed in the past -- raises the bar on growth, profitability and asset efficiency. It places even more emphasis on global expansion.

 

Among other things, the plan targets doubling sales to $50 billion (USD) by 2018 in relation to the base year of 2010.

 

Nearly four years into this strategic journey, we're making steady progress, especially in gaining sales and growing our international business.

 

Despite our strong performance, the company is running somewhat short of its profitability targets. We are, however, working to tackle these issues and remain confident that our goals are within reach.

 

Another strategic priority is making sure we're in the right mix of product segments and markets.

 

Thus we are constantly reassessing our portfolio with an eye toward participating in those businesses, and only those, that can consistently deliver targeted financial returns and complement or support our other businesses.

 

Last year, we announced the sale of a majority interest in our landscapes unit and, some time earlier, exited the wind-energy business based on the same type of considerations.

 

We've augmented our lineup as well – last year buying a premier manufacturer of ultra-wide planters, which we believe will help us better-serve production farmers in markets such as the U.S. and South America.

 

Our goals also require making substantial additions to our capacity…which is why the company is investing for the future at an unprecedented rate.

 

As noted, we opened seven new factories in the past 12 months…in Brazil, Russia, India and China. All are markets where the company has significant growth aspirations.

 

These investments build on earlier ones that have resulted in expansions and modernizations at virtually all our major production facilities throughout the world, including those in the U.S.

 

One of Deere's biggest investment stories concerns our new construction-equipment factories in Indaiatuba, Brazil, whose official opening took place earlier this month.

 

The twin factories, one of which is jointly owned with our partner Hitachi, were constructed in just two years' time.

 

The Indaiatuba factories are integral to helping our construction-equipment operations gain a foothold in an attractive market and achieve more global scale.

 

Meanwhile, the loaders, backhoes and excavators produced there will help meet Brazil's growing need for housing and infrastructure.

 

Also located in Indaiatuba are the administrative and marketing offices that support our various other businesses in South America – such as ag equipment and financial services.

 

By working together in the pursuit of common goals, our Brazilian operations are leveraging their strengths and sharing their insights and perspectives.

 

This adds momentum to our growth efforts and we believe it makes John Deere a more-formidable, truly integrated enterprise.

Seizing attractive trends, and capitalizing on strong markets, is important. But that alone won't allow us to reach our goals.

 

Our competitors, after all, stand to benefit from the very same factors. They are eying the same horizons, pursuing the same opportunities and, yes, laying claim to the same customers.

 

To fulfill our ambitions, John Deere must decisively outdistance the competition in any number of respects:

 

…Such as developing a more thorough understanding of customers…finding ways to introduce innovative products at lower price points…establishing a first-rate distribution and after-market support system in all markets…and, of vital importance, ensuring we attract top-flight talent throughout the world.

 

Indeed, there's nothing that will have more impact on John Deere's future than a supremely talented, committed and motivated workforce – such as our 65,000 employees and leaders.

 

Everywhere we operate, we seek to attract the best talent…then to develop and deploy that talent for the ultimate benefit of our customers and investors.

 

We've adopted disciplined processes to accomplish this aim and exacting metrics to stay on track.

 

There's always room for improvement, of course. But we're making further progress in categories such as hiring preferred candidates, finding challenging developmental assignments, and building employee engagement.

 

Engagement is a particular priority because it is a key driver of performance, innovation and growth – all essential to carrying out our strategic plans.

 

We aspire to achieve world-class levels of employee engagement, as defined by the results of our all-employee survey, which normally takes place every two years.

 

I'm pleased to say our index score has been moving up and we're hopeful this will be the year our engagement goal is attained.

 

We also stress developing the right kind of leaders – those who share our values and have the drive and determination to help fulfill our mission of serving those linked to the land.

 

That's why we take leadership development so seriously…and do everything possible to assist our people in making the most of their skills and realizing their potential.

 

Among other steps, we've added rigor to our succession planning processes to ensure we have talented leaders in place throughout the world for our present and future needs.

 

A major objective is developing indigenous, or regional, talent to help manage our non-U.S. operations and extend the John Deere brand to a wider global audience.

 

I'm proud to note that, partly as a result of this emphasis, Deere has an increasing number of extremely capable nationals serving in key management roles across Asia, Europe and South America.

 

The way we see it, bringing more diversity to our workforce, including our leadership ranks, makes our business goals that much more attainable.

 

It fosters a richer global mindset and helps us achieve a deeper understanding of our customers -- a group that itself has a wider range of backgrounds and needs than ever before.

 

In closing, it's clear we live in an age of uncertainty. Whether fiscal, economic, social, or political, uncertainty abounds.

 

Such an environment, however, does nothing to dim our optimism, or dampen our enthusiasm, concerning our own company's future.

 

We're as certain as ever about Deere's own businesses and future prospects.

 

We're sure about the quality and reliability of our products and services, and the talent and commitment of our employees, dealers and suppliers.

 

We're sure as well about the capacity and efficiency of our production facilities, and the depth and focus of our strategy.

 

We're equally confident that as the world's population grows in size and affluence, opportunities will increasingly emerge for Deere to deliver value to our investors and other constituents – value that we believe will multiply and endure in the years ahead.

 

For all these reasons, we have no doubt about the wisdom of the company's present course. And it's why we say, with pride, purpose and deep conviction, that John Deere's best days are still to come!

 

On behalf of the entire management team, I'd like to express my appreciation to everyone for your continued encouragement and support.